Fiduciary Duties

Alleged cross-selling to plan participants questioned

Putting the Trump Executive Order on ESG Into Perspective for ERISA Fiduciaries

Much was made of the President’s April 10th Executive Order that directed the Secretary of Labor Alex Acosta to re-examine the DOL’s guidance on proxy voting. The Executive Order was focused on energy production, so a reasonable inference is that the DOL could tighten the screws on how ERISA fiduciaries engage in proxy voting and other forms of shareholder engagement when taking into account ESG risks. Our initial description and analysis of the Executive Order can be found here. Today, Pensions & Investments published an op-ed of mine, which seeks to put the Executive Order into context for ERISA fiduciaries, particularly those who are taking ESG factors into account when they vote proxies on behalf of plans. I note, for instance, that adding a more rigorous test for including ESG factors into proxy voting decisions “could not be so onerous as to make divestment preferable to engagement, as that would seem to undermine the executive order’s very purpose.”

ESG from a Fiduciary Perspective

ESG from a Fiduciary Perspective – Click to view portfolio

TDFs as a source of fiduciary risk?

What the new Executive Order on proxy voting may mean for fiduciaries

The White House announced on April 10 that the President had signed an Executive Order on “Promoting Energy Infrastructure and Economic Growth.” Section 5 of the Executive Order imposes two requirements on the Department of Labor (DOL), each of which must be completed within 6 months:

  1. “[C]omplete a review of available data filed with the Department of Labor by retirement plans subject to the Employee Retirement Income Security Act of 1974 (ERISA) in order to identify whether there are discernible trends with respect to such plans’ investments in the energy sector,” and “provide an update to the Assistant to the President for Economic Policy on any discernable trends in energy investments by such plans;” and,
  2. “complete a review of existing Department of Labor guidance on the fiduciary responsibilities for proxy voting to determine whether any such guidance should be rescinded, replaced, or modified to ensure consistency with current law and policies that promote long-term growth and maximize return on ERISA plan assets.”

Less than one year ago, the DOL released Field Assistance Bulletin 2018-1, in which the DOL clarified its views on how shareholder engagement could be conducted in a manner consistent with ERISA’s fiduciary duties. Proxy voting and other forms of engagement are fiduciary functions under ERISA. The application of ERISA’s fiduciary duties in this context is ultimately a function of materiality and cost, each positively related to the other, so that as the perceived materiality of an issue on investment performance that is the subject of engagement increases, a fiduciary has more rope to incur costs on its meetings with the board, etc. The converse is also true. A possible result of a narrower interpretation by the DOL and/or the courts of what (ESG) risks are material to a company’s performance: less engagement on those risks broadly. A more probable result, however, is that fiduciaries already evaluating ESG risks will continue parsing whatever ad hoc disclosures are volunteered by the companies, and may point to statements made by prominent individuals and institutions on the materiality of these risks.

George Michael Gerstein interviewed on fiduciary duty evolution

I was interviewed by 401(k) Specialist Magazine on the latest re. DOL Fiduciary Rule, Reg BI and state attempts at imposing uniform fiduciary standards of care.

Another 401(k) suit targets use of affiliated funds

SCOTUS to hear case on 401(k) lineup heavy with private equity funds, hedge funds and other alternatives?

Bloomberg Law is reporting that Intel is asking the US Supreme Court to take up the Ninth Circuit’s ruling that ERISA’s statute of limitations doesn’t run until the participant has actual knowledge of an ERISA violation. Intel has been challenged under ERISA for the amount of exposure participants had to private equity funds, hedge funds and commodities.

Bill Mandia & George Michael Gerstein discuss fiduciary developments

Larry Stadulis & George Michael Gerstein sit down with Citywire RIA Magazine to discuss the fiduciary state of play

The January 2019 edition of Citywire RIA Magazine features a discussion with Larry and myself on the various state approaches to regulating broker-dealers and investment advisers within the context of SEC Regulation Best Interest.